Signaling by sonic hedgehog (SHH) during development and in normal adult tissues is an important regulatory mechanism for proliferation and morphogenesis. SHH binds to and antagonizes the activity of the tumor suppressor PTCH, a gatekeeper molecule important in basal cell carcinoma of the skin (BCC), medulloblastoma, and rhabdomyosarcoma. Loss-of-function and gain-of-function studies support a role for the GLI family of zinc finger transcription factors in transmission of the hedgehog signal. In BCC, a most common form of carcinoma, GLI expression is consistently induced as a result of mutation of PTCH or of other molecules in the pathway. Expression of GLI or GL12 in mouse skin is sufficient to induce BCC. To better understand the role of GLI in tumor progression, we extensively characterized GLI-expressing RK3E epithelial cells to identify putative target genes. The techniques of suppression subtractive hybridization and microarray analysis were used in combination to identify GLI-induced transcripts. The identified transcripts were not altered in association with transformation by several other oncogenes, including RAS, c-MYC, or GKLF/KLF4. Compared with control cells, mouse embryo cells harboring defective alleles of PTCH exhibited increased expression of several of these transcripts, suggesting that expression of endogenous GLI is sufficient for some of the observed transcriptional effects. mRNA in situ hybridization revealed increased expression of GLI-induced transcripts in GLI-positive hair follicles and in human BCC, compared with GLI-negative hair follicles. Unlike other oncogenes that transform RK3E, GLI specifically induced expression of molecules or oncogenes known to induce epithelial-mesenchymal transition (EMT) in development. Multiple alterations in gene expression previously observed in human BCC were likewise induced by GLI in vitro. We propose to identify transcripts that correspond to direct transcriptional target genes, to determine a role for specific GLI-induced transcripts in a mouse model of BCC, and to characterize specific GLI-induced transcripts as potential effectors of transformation in vitro and in vivo.